Music Matters - A Window Into The Asian Music Market
sounni ali
http://www.musicdish.com/mag/index.php3?id=12450
I've been a regular to several of the major worldwide music
conferences over the years, from MIDEM (Cannes) and Popkomm (Berlin)
to Canadian Music Week (Toronto). These have not only been a great
opportunity to meet and do business with companies in major Western
markets, but to also gain a true perspective on the challenges and
opportunities specific to those markets. So, it was with quite some
excitement that I made my way to Hong Kong for my first trip to Asia,
and the 4th edition of Music Matters at the Grand Hyatt from June 2-4
( http://www.musicmatters.asia ).
From the start, it was clear that Music Matters has a distinctly
different feel from most other conferences, more of what I'd call a
'family affair'. Unlike other conferences that offer a plethora of
simultaneous, often lightly attended, Music Matters sets a unified
program followed by all delegates. The message is clear: If you want
to understand the Asian market, here is the information you will need.
And whereas the other conferences make participants available to
facilitate scheduling meetings in advance, Music Matters takes a
completely opposite approach. "We want a free-flowing networking event
where everyone has access to everyone else in a open format,"
explained Commercial Director Stan Ruza.
While I was initially skeptical that this would work, it ended up
being a nice and productive change, especially for someone looking to
build up a broad base of contacts in Asia. I left with as many
contacts as I do from other conferences, even though it was much
smaller -- composed mostly of decision makers from all the major Asian
markets: from Tokyo to Mumbai, Sidney to Kuala Lumpur.
Japanese Nirvana
While I learned a lot about the Asian market in those 2 days, the most
surprising "revelation" was actually a question: when will the
Japanese music market surpass the US for the #1 position? More
shocking were the estimates ranging from only 5-10 years.
So what exactly is happening to justify this doomsday scenario (at
least from the US perspective)? Simple: the Japanese love music, and
are still more than willing to pay for it, whether old or young. Kei
Ishizaka, CEO & Chairman of Universal Music LLC Japan and RIAJ
(Recording Industry Association of Japan) Chairman presented some
facts in his opening keynote "New Strategies & Opportunities in Japan"
that might make some in the West red with envy:
* Digital sales in Japan have increased from 7.5% in 2005 to 20% in
2008
* Mobile is the driver, accounting for 89% digital sales in 2008
* Note that this is a slight drop from 94% in 2005, credited to iTunes
Japan which, accounts for 50% of online sales
* Japan is the only music market where digital sales have made up for
losses in physical sales - that is until 2008, when physical losses
appear to be outpacing the growth of digital sales
* Japanese music consumers appear relatively price inelastic, with a
willingness to pay the highest prices of any country for music: up to
$4/ringtone and $30+/CD album
* The Japanese music industry is still a hit-driven one
Perhaps most importantly, the Japanese music industry has not
abandoned its most profitable customers: those over 40. The dirty
little secret in the US is that according to Soundscan, CD sales have
fallen faster amongst those over 40, largely out of neglect by labels
focused on the youth market. The Japanese music companies on the other
hand, have consciously developed products for the over 40 demographic,
which (i) do not download music and (ii) are willing to pay big bucks
($30+) for a high-quality CD (ie music, packaging...).
This is not to say that Japan is a complete musical nirvana: more
music was acquired via illegal means (407 million tracks) than legal
(329 million tracks) on mobile platforms. In 2006, the RIAJ sent over
220,000 takedown notices, and have since filed criminal charges
against mobile BBS (Bulletin Board System) site operators. But despite
these challenges, the Japanese market has been growing non- stop, with
the exception of 2008 when it recorded a measly 3% drop in sales,
which is not generally viewed as a trend for the coming years.
Get Me A Piece Of That Pie!
By this point, you're probably trying to devise ways to grab of a
piece of the Asian pie. Think again! You're still more likely to make
it in the US or Europe than earning any yens or yuans. Just like the
Great Wall of China, the Asian market presents nearly insurmountable
challenges for even the most savvy western artists.
First, the Asian market is completely dominated by local repertoire.
Japan is actually one of the more accessible markets, with
international repertoire accounting for a little over 20%; though,
this has been decreasing over recent years. Look outside of Japan and
the numbers are downright depressing. Take the fastest growing markets
such as Malaysia, Indonesia, India and China; and their local
repertoires accounts for nearly 99% of total.
Put simply, Asians want music that they are culturally/linguistically
comfortable with and can relate too. Of course there is Hip Hop, Pop,
and Rock throughout Asia, but it is all sung in their respective
native language, with their cultural nuances. This is in complete
contrast with the West where English is, for all intents and purposes,
a necessity to become an international star, whether you’re called
Shakira, Bjork or The Scorpions.
In addition, Asia has no long-tail effect. It is still a hit-driven
market, which tends to play against foreign acts. The general
consensus among conference speakers and attendees appears to be that
Asian consumers are just too busy working to go hunting for new music,
to listen to podcasts, or to endlessly surf social media sites.
As such, Asian consumers are much more 'captive' to recommendations
and editorial leads than say the US, where we have a proud tradition
of bin-diving for that rare LP - wasn't the old Napster and today's
MySpace simply the digital shape of this art form? The fact that
mobile drives music consumption as opposed to the net, has some part
to play in this as well. For the same reason, all-you-can-eat
subscription services competing with iTunes are not likely to gain a
sufficient subscriber base despite the markets' sizes.
But let us say, for argument's sake, that you do develop some
recognition in an Asian market. How do you expect to generate money
from it? You've all heard of the scourge of piracy in Asia, so I don't
want to rehash the topic. Let me just leave you with this fact from
Google China's Bin Lin: of the 7,000+ music services in China, only
0.1% of their offerings are legal downloads.
Licensing isn't much help either. Unlike North America and Europe,
where Performing Rights Organizations (PROs) have a long history,
collection agencies are relatively young in Asia and have yet to get a
grip on the digital market. As a consequence, there is a lot of
mistrust between publishers and PROs, which significantly hampers
licensing opportunities. If one takes the Indian market for example,
where 70% of music consists of soundtracks (courtesy of Bollywood),
music labels have been collecting all relevant rights until recently.
Even the mature Japanese market has its eccentricities, such as songs
being available free of sync licensing for commercial purposes up to
one year after its release. As a consequence, success in the Japanese
market may well depend on a willingness to waive sync rights for
commercial use, representing an important way to break a song,
explained Kimitaka Kato, Universal International Managing Director.
Are You Depressed Yet?
Frankly, I'm not! My recommendation is too look at the Far East as the
Wild West: full of opportunity for those with the patience and guts
too tough it out. The first lesson is that you are nobody unless you
are here. Thus I made the trip to Music Matters and then to Beijing,
where I met a successful music pioneer, Kenny Bloom.
Bloom, who was kindly referred to me by NARIP's (National Association
of Record Industry Professionals) Tess Taylor, came to China over 20
years ago to launch Warner Music. He now runs Mogo (www.mogo.com.cn),
one of the coolest video sites in China serving the young, hip
(undeserved) Chinese urban youth. So why is he still in China with
everything I previously mentioned?
(i) China has the largest internet population (around 300 million, ie,
the entire US population)
(ii) Around 80% of Chinese internet users are music consumers (240
million)
(iii) Music was the #2 search term for the last 3 years
(iv) At $50 billion annually, China is now the 2nd largest advertising
market (It just recently surpassed Japan for the #2 position)
He also has a different take on the Chinese consumer. According to
Bloom, it's not so much that the Chinese are busier or harder working,
but that they are in an underdeveloped media market. Media in China
(TV, radio and to some extent the internet) is directly or indirectly
controlled by the Communist government.
As The Economist recently noted "the proliferation of channels for
media, information and entertainment offers unbounded scope for the
[Chinese Communist] party to get its message across, abetted by
commercial operators." One consequence of this is the sanitizing of
media in order to appeal to a national audience that includes rural
peasants as well as urban dwellers. It's a process not unlike our over-
conglomeratized radio or broadcast TV markets, which is suffering from
competition by more original and niche programming on cable, satellite
and the internet.
The upside is that this presents unique opportunities to serve the
growing chique urban class, which the centralized media market is
incapable of satisfying; a segment Bloom estimates to be 40 million
and growing. By serving this high-value segment with high-quality,
original video programming, Mogo is able to attract big-name brands
such as Converse that place a premium on this demographic. To some
extent, Mogo is trying to do for China today what MTV did for the U.S.
in the 80's.
Another Beijing-based company to watch is Yobo Music (www.yobo.com), a
recommendation and discovery site for music. Its founder Allen Guo was
perhaps the most eloquent at Music Matters on the need to offer
Chinese consumers a variety of models and services that enhance their
music experience. Only by meeting the various needs of different
consumer segments -- as the Japanese music market has done so
successfully -- will alternatives to piracy be sustainable.
Future revenues will be driven by value-added music services rather
than easily pirated downloads or ringtones. And while advertising may
seem a panacea to many in the U.S. and China (did I mention they are
the 2 largest advertising markets), Allen noted some success by Yobo
Music with other revenue models such as micro-payments and music
gifting.
The Silver Lining
In the end, the Wild West was tamed and I believe the same will happen
with China. America in its first 50 years was home to pirates (ie.,
privateers) and some of the worst copyright/patent infringers of the
time. This is part of what lead to the growth of the young, scrappy
republic. But as it matured, and itself became more of a creator/
innovator, America began to place increasing value on protecting
copyright/patents.
The same will be true for China. As Bloom noted, "How do you expect a
people that had no concept of private ownership 10 years ago to
understand, let alone value, something like copyright?" In other
words, not only has copyright been a foreign concept, it would have
been counter-productive to the country's development. But as it begins
to export more cultural goods and develop new patents, that trend will
reverse as surely as it did in the US. The only question is whether it
can put the genie back in the bottle when the time comes.
I happened to arrive in Beijing on the 20th anniversary of the
Tiananmen Square incident. Sure enough, I could not access Twitter or
YouTube, and any coverage on foreign TV channels, like BBC were
blocked by a blank screen. Once the Communist Party determines that
copyright is something worth putting the effort towards protecting, I
wouldn't give those 7,000+ so-called music services much of a chance.